The Upstream Oil and Gas Regulatory Task Force has approved the working programmes and budget plans of 274 production-sharing contractors for 2013 with total investment commitments of US$26.2 billion.

Indonesia's Energy and Mineral Resources Minister Jero Wacik, who, in his capacity as the caretaker of the task force, last Tuesday presented the work and budget documents to oil companies, appeared elated by the big investment commitments by the mining companies.

The 20 per cent increase in investment commitments compared to last year indeed seems quite impressive, appearing to indicate that oil mining contractors have not been bothered in the least by the abrupt disbandment of the oil and gas regulatory agency BPMigas by the Constitutional Court last November.

The multi-billion dollar new investment commitments seem to simply ignore the legal uncertainty currently looming in the hydrocarbon sector due to the current parliamentary deliberations of the proposed amendments to the 2001 Oil and Gas Law.

Oil companies seem to have completely disregarded the mounting wave of nationalism in the country’s natural resources sector ahead of the forthcoming 2014 legislative and presidential elections that will most likely produce a new oil law granting preferential treatment to national interests at the expense of foreign companies.

But further analysis of the investment commitment figures shows that the heightened legal uncertainty caused by the November decision by the Constitutional Court to close down BPMigas and the upcoming amendments to the 2001 Oil Law has hit the industry hard.

About 90 per cent of the investment commitments, or $23.5 billion, has been allocated for activities related to production development.

While these operations should still be welcomed in light of the government’s bid to raise the daily oil output to 900,000 barrels per day (bpd) this year from the current approximately 850,000 bpd, the spending actually is not investment in the real sense.

What Jero described as investment in production development is simply spending to extract (lift) oil and gas from proven hydrocarbon reserves. They will not contribute anything to our oil reserves, which continually need to be replenished by new discoveries.

Oil contractors do not face any risks at all in their expenditure on production development because every cent they spend on activities related to production operations can be recovered from the revenue from the producing oil fields.

Of the $26.2 billion total investment commitments, only about 10 per cent or $2.7 billion can be classified as real investment because it will be used for exploratory drilling to discover new reserves. This spending can be recovered by contractors only if their explorations find enough new reserves for commercial production.

Before 2000, an average 30 per cent of contractors’ annual spending was allocated for exploratory drilling operations. In the same period 50 to 60 per cent of new oil reserves were derived from new fields, but now more than 80 per cent of new reserves come from enhanced recovery in older, mature fields.

The last big discovery of reserves (about 600 million barrels) was made in 1992 in the onshore Banyuurip field at Cepu, East Java.

No wonder, Indonesia’s oil production has fallen steadily from 1.5 million bpd in 1999 to the 850,000 bpd at present, while domestic consumption has exceeded 1.4 million bpd, turning the country into a net oil importer since 2004